Republicans and Democrats are hurtling toward a fiscal cliff, and neither side wants to take the plunge.

In less than nine months, Bush-era tax rates are scheduled to expire, hiking rates for the middle class as well as top income earners. At the same time, automatic spending cuts will kick in. The combination, coupled with the expiration of the payroll tax cut and other factors, would constitute a blow that analysts say could imperil the economic recovery and send America crashing back into recession.

"In less than nine months, Bush-era tax rates are scheduled to expire, hiking rates for the middle class as well as top income earners."

The message to investors that higher rates are coming does as much damage as the higher rates and the uncertainty makes it even worse. If we avert this disaster at the last minute it means we caused all of the economic damage but (again) collected no new revenues at the higher rates. We couldn't be more stupid (MHO).

All economists agree you don't raise taxes in a recession because of the damage that it will cause and you can't raise taxes in this vulnerable super slow growth economy on the brink of disaster because of the damage it will cause. Instead we keep promising to raise taxes at some other time when things are going much better only to again screw up what was once almost working.

The Bush tax cuts were made temporary with the belief that if they were successful in growing the economy they would later be made permanent. But after 52 consecutive months of job growth people instead took that growth for granted, without its foundation, and elected a promise to end those policies and those results. We had moved on to higher needs like ending unequal outcomes, changing the content of the troposphere and living a free birth control dream of unlimited sex without consequences, then whine about the stall that we caused.

Even if pro-growth Republicans were to win it all, the supreme court case, the House, the Senate narrowly and the Presidency, they still lack the votes to implement major reform. In the meantime investors and employers face uncertainty worse than you find in most third world countries: a new "top rate of 25 percent"... "or as high as 40 percent or more" and these rates don't count the other layers of taxation while states and local governmentss face bankruptcy.

Uncertainty causes inaction which means factories not built and investment capital free to leave the country or rot on the sidelines. According to one of Scott Grannis' charts we lost 12% of our economy perhaps permanently off of our long term growth curve in the current crisis. Now we might try to grow a smaller economy with a lower participation rate at a slower growth rate, pulling a larger anchor. And we made emergency spending increases permanent. That formula doesn't pay the bills, meaning more debt, more devaluation and more pressure for additional 'revenue enhancers'.

Quite ironic is the inverse correlation that the need for public spending in a sick economy actually goes up while the means to pay is going down. The spenders instead should love having the pro-growth side build up available revenues.

From the article: "Despite the gamesmanship, House Ways and Means Committee Chairman Dave Camp (R-Mich.) hopes upcoming meetings with Republican members on taxes can pave the way for the first broad overhaul of the tax code since 1986. “Our goal is to not only block massive, job-killing tax increases,” said Sage Eastman, a spokesman for Camp, “but also to enact comprehensive tax reform.” Camp and Senate Finance Committee Chairman Max Baucus (D-Mont.) are among those laying the ground work for tax reform, an effort that many expect to bleed into the next Congress."

The timing of these reforms really needs to be now, not to wait for the next divided government. The message from the people though is split and polarized making bold action impossible. Further stagnation is a best case scenario IMHO.

Instead of arguing either side of the budget fight, Pres. Obama is taking the fight to another level of job killing and 'fairness'. Too bad people in his own party don't tell him to straighten up and get this done.

"...here are 10 common sense propositions I challenge political economists to refute. (forum contributors too!)

1) Money is not wealth, but merely a claim on wealth. Printing more money does not create more wealth.

2) Counterfeiting money steals wealth from others. The theft is no less when a government does it.

3) Moving money from one pocket to another does not create wealth. This is true even when small amounts of money are quietly siphoned from the pockets of the many and loudly deposited into the pockets of the few.

4) Before wealth can be consumed, invested, or redistributed, it has to be created. Consuming existing wealth does not create more of it, nor does borrowing against future wealth.

5) Wealth is created when consumption is deferred in favor of profitable production. Profits generally require selling something for more than it costs to make.

6) Profits are rarely a sure thing. Every decision to forgo consumption and invest in production seeking future returns is a gamble.

7) Private investors investing their own money generally seek to maximize after-tax profits balanced against a chosen degree of acceptable risk. Investment decisions are sensitive to policies that affect this equation.

8 ) Private investors that consistently make bad decisions, thereby squandering their wealth, eventually lose the ability to make more investments.

9) Politicians often "invest" other people's money seeking to maximize the number of votes they can garner. Whether or not these "investments" generate a future return, or are just thinly veiled redistributions, is secondary because a politician's time horizon extends only until the next election.

10) Politicians acting as public investors who consistently make bad decisions can remain in office and continue making more "investments" as long as they convince enough voters to shift the blame for their failures onto others.

Like a plow horse, the US economy just puts one hoof after the other. It ain&rsquo;tgonna win any races, but it ain&rsquo;t gonna keel over and die either.After slogging through the mud last year, and slowing down to just 1.2% annualizedgrowth in the first three quarters of 2011, things have improved. In the fourthquarter last year, real GDP grew a solid, work-horse-like, 3%. We expect thatcontinued in the first quarter of 2012.

If anything, other indicators suggest real GDP growth might be even stronger.Nonfarm payrolls rose 635,000 in Q1, the largest gain since 2006. Total hours workedin the private sector climbed at a 3.7% annual rate. In other words, to get 3% realGDP growth assumes some weakness in productivity.

This is clearly not the recovery heaven of 1983-84, when real GDP grew at a 6.6%annual rate for two years and the jobless rate fell 3.5 percentage points in only 21months. It&rsquo;s not a double-dip, either, and after six consecutive months of 3%growth, it&rsquo;s not all about nice weather.

Consumption: Auto sales were up at a 35% annual rate in Q1 while &ldquo;real&rdquo;(inflation-adjusted) retail sales ex-autos were up at a 5.8% rate. Services, a majorpart of consumption, are not up as much, but it looks like real personal consumption&ndash; goods and services combined &ndash; probably climbed at a 2.2% annual ratein Q1, contributing 1.6 points to the real GDP growth rate. (2.2 times theconsumption share of GDP, which is 71%, equals 1.6.)

Business Investment: Business investment in equipment and software as well ascommercial construction appear to have grown at an annualized 6% rate in Q1. Thisshould add 0.6 points to the real GDP growth rate. (6 times the business investmentshare of GDP, which is 10%, equals 0.6.)

Home Building: Led by apartment buildings &ndash; and assisted by unusually mildwinter weather &ndash; residential construction appears to have grown at about a 17%annual rate in Q1. This translates into 0.4 points for the real GDP growth rate. (17times the home building share of GDP, which is 2.3%, equals 0.4.)

Government: Military spending continued to decline in Q1, but state and localgovernment construction looks like it rose. On net, real government purchases shrankat about a 1% rate in Q1, which should subtract about 0.2 percentage points fromreal GDP growth. (-1 times the government purchase share of GDP, which is 20%,equals -0.2).

Trade: At this point, the government has only reported trade data through February.But, on average, the &ldquo;real&rdquo; trade deficit in goods has declined comparedto the Q4 average. This shrinkage resembles what happened in the first quarter of2006, when the trade sector added 0.4 points to the real GDP growth rate.We&rsquo;re forecasting the same for this year&rsquo;s first quarter.

Inventories: As always, inventories are the wild card. We only have&ldquo;real&rdquo; inventory figures through January, when they rose sharply.Nominal inventories were up at a moderate pace in February and we&rsquo;re assuminganother moderate gain in March. This should generate a very small addition of 0.2points to the real GDP growth rate in Q1.

Add-em-up and you get another 3% real GDP growth for Q1 &ndash; another &ldquo;plowhorse&rdquo; report.

The pessimists will likely subtract inventories and trade, and bash the economy, butthis game of trashing every piece of data for political purposes is getting reallyold.

After piling massive government spending, new regulation, the threat of major taxhikes, European uncertainty, higher energy prices, and a host of other things on itsback, the US economy keeps plodding along. It&rsquo;s a testament to the resilienceof the entrepreneurial spirit, determination and new technology. It&rsquo;s worthcelebrating, not tearing down.

Don&rsquo;t get us wrong. We think the economy could grow faster if government weresmaller and tax hikes were off the table, but we are a long way from recession andthat&rsquo;s good news for investors.

Like a plow horse, the US economy just puts one hoof after the other. It ain&rsquo;tgonna win any races, but it ain&rsquo;t gonna keel over and die either.After slogging through the mud last year, and slowing down to just 1.2% annualizedgrowth in the first three quarters of 2011, things have improved. In the fourthquarter last year, real GDP grew a solid, work-horse-like, 3%. We expect thatcontinued in the first quarter of 2012.

If anything, other indicators suggest real GDP growth might be even stronger.Nonfarm payrolls rose 635,000 in Q1, the largest gain since 2006. Total hours workedin the private sector climbed at a 3.7% annual rate. In other words, to get 3% realGDP growth assumes some weakness in productivity.

This is clearly not the recovery heaven of 1983-84, when real GDP grew at a 6.6%annual rate for two years and the jobless rate fell 3.5 percentage points in only 21months. It&rsquo;s not a double-dip, either, and after six consecutive months of 3%growth, it&rsquo;s not all about nice weather.

Consumption: Auto sales were up at a 35% annual rate in Q1 while &ldquo;real&rdquo;(inflation-adjusted) retail sales ex-autos were up at a 5.8% rate. Services, a majorpart of consumption, are not up as much, but it looks like real personal consumption&ndash; goods and services combined &ndash; probably climbed at a 2.2% annual ratein Q1, contributing 1.6 points to the real GDP growth rate. (2.2 times theconsumption share of GDP, which is 71%, equals 1.6.)

Business Investment: Business investment in equipment and software as well ascommercial construction appear to have grown at an annualized 6% rate in Q1. Thisshould add 0.6 points to the real GDP growth rate. (6 times the business investmentshare of GDP, which is 10%, equals 0.6.)

Home Building: Led by apartment buildings &ndash; and assisted by unusually mildwinter weather &ndash; residential construction appears to have grown at about a 17%annual rate in Q1. This translates into 0.4 points for the real GDP growth rate. (17times the home building share of GDP, which is 2.3%, equals 0.4.)

Government: Military spending continued to decline in Q1, but state and localgovernment construction looks like it rose. On net, real government purchases shrankat about a 1% rate in Q1, which should subtract about 0.2 percentage points fromreal GDP growth. (-1 times the government purchase share of GDP, which is 20%,equals -0.2).

Trade: At this point, the government has only reported trade data through February.But, on average, the &ldquo;real&rdquo; trade deficit in goods has declined comparedto the Q4 average. This shrinkage resembles what happened in the first quarter of2006, when the trade sector added 0.4 points to the real GDP growth rate.We&rsquo;re forecasting the same for this year&rsquo;s first quarter.

Inventories: As always, inventories are the wild card. We only have&ldquo;real&rdquo; inventory figures through January, when they rose sharply.Nominal inventories were up at a moderate pace in February and we&rsquo;re assuminganother moderate gain in March. This should generate a very small addition of 0.2points to the real GDP growth rate in Q1.

Add-em-up and you get another 3% real GDP growth for Q1 &ndash; another &ldquo;plowhorse&rdquo; report.

The pessimists will likely subtract inventories and trade, and bash the economy, butthis game of trashing every piece of data for political purposes is getting reallyold.

After piling massive government spending, new regulation, the threat of major taxhikes, European uncertainty, higher energy prices, and a host of other things on itsback, the US economy keeps plodding along. It&rsquo;s a testament to the resilienceof the entrepreneurial spirit, determination and new technology. It&rsquo;s worthcelebrating, not tearing down.

Don&rsquo;t get us wrong. We think the economy could grow faster if government weresmaller and tax hikes were off the table, but we are a long way from recession andthat&rsquo;s good news for investors.

I love Wesbury but yes it seems to be coming down to a reach for new metaphors. GM, can you predict the next one? A 3-legged plowhorse pulling as hard as he can, or: blind squirrel finds an acorn?

"slowing down to just 1.2% annualized growth in the first three quarters of 2011"

Breakeven growth used to be called 3.1%. Just 2 points below breakeven and 23 million out of full time work but luckily no recession.

"1983-84, when real GDP grew at a 6.6% annual rate for two years and the jobless rate fell 3.5 percentage points in only 21 months."

Yes, that is what real growth with pro-growth policies coming out of a deep recession looks like. This isn't it.

3% growth peak in one quarter along with 1% last year makes about 2% on a 2 year average, rounding up.

"not a double-dip" ... "we are a long way from recession"

Depends on what the meaning of the word is is. A recession involves negative growth for at least 2 quarters while this is just moving backwards slowly beneath the rate of breakeven growth or stuck in neutral for 3-4 years or at least until we change course. We are a long way from a recession? About one external shock away. More importantly, we are about 500 to 1000 years away from growing out of our current malaise and budget problems at our current rate of growth - best case.----

"...this thread has recently joined the ever-growing list of threads on this forum with over 100,000 reads. A pleasure working with you gentlemen."

And thank you for hosting. When you hear that we changed one vote, we will celebrate!

I knew you could do it! Now we wait for the next 1% growth quarterly report and check the Wesbury July outlook (pre-written below) and see if you got it right.

'The Walking Dead' Growth in the Obama economy for the second quarter of 2012 was reported at 0.00% by the US Dept of stagflation, coincidentally the same as John Belushi's 7 year GPA in Animal House. I am Brian Wesbury looking out for your investments. We are nowhere near recession or double dip, much less a triple axel with an ACL tear on the landing. The outlook we see is for nothing but more smooth sailing ahead. Some encouraging news in housing starts which tripled last month from 0.1 to 0.3 starts. See you next month with more good news.

"...keep in mind that when the DOW was at 6500 GM and I were predicting 6000. We have missed on that one by over 100%. That is a rather big miss!!!"

Good points. Also keep in mind that the DOW consists of 30 named companies who operate globally and can improve profitability by closing a store in your neighborhood, open one in Brazil and build it all in China. The exchange Crafty and JDN had a couple of days ago over NASDAQ was telling. Using the exuberance of it hitting an eleven year high is mathematically the same as saying that every dollar invested those entire 11 years returned a 0% return. We added 30 million people and our technology sector grew by zero? Did we make it all up in factory jobs?

While GM and Wesbury were arguing over the optimism in the US economy last year, Wesbury is now conceding that growth was 1.1%. That is not lethargic, that is pathetic. The DOW companies are up globally but in the US we are starting 600,000 fewer new companies a year than what is needed for vigorous growth (a statistic not shown in the DOW or S&P listings of existing companies) while budding entrepreneurs look at this business climate and new regulations coming and say: why bother.

Wesbury posts great data and analysis (no, let's not start snarking Scott who is more likely to read or post here) but Wesbury is read best here on the forum with the accompanying snark and criticisms for context and perspective.

I judge economists by how well they are able to explain what has already happened, not for their fortune telling capabilities and Wesbury is very good. PP ripped him the worst one time over housing data but that is a good reminder that all these economic measures have flaws.

Wesbury has put (IMO) some nice lipstick on a pig at times and I am regretful to say that GM in his pessimism has been at least partly right - 1.1% growth through most of last year?? For example, if we point out a 3% increase in housing starts for single family homes that needs to be in the context that they were recently almost at zero with the entire homebuilding industry shut down. They are growing nowhere near fast enough to employ back hardly any of the former construction workers, electricians and plumbers that used to build those homes. If the new starts are now apartments being constructed it means that many of the existing foreclosed or vacant homes will never come back. There are banking, budget and housing value consequences that come with that.

In Detroit, formerly America's 5th largest city larger than Chicago now smaller than San Jose, I imagine there are more homes gone than remaining and a city in bankruptcy. Other neighborhoods in other American inner cities have similar problems. McDonalds and Coca Cola are selling well in China, that does not mask the fact that not one significant product is manufactured in the population centers of North Minneapolis, the Southside of Chicago or East LA.

In an election year I am not inclined to accept sugar coating over what is currently not getting fixed with our man made economic problems. We have growth but it is below breakeven levels and at least close to the worst case in our lifetime for not growing our way back out of the mess that we made. One reason this badly managed economy doesn't fall off the cliff right now is because we are still sitting at the bottom of the cliff. Just my two cents.

Washington Post's Dana Milbank did a hard hitting piece recently echoed by NBC's Rachel Maddow about Romney lying. The core accusation was that he is saying this is the worst recovery since... who knows when.. while their fact checkers tell them 1982 was worse when Tip Oneills congress delayed Reagan's tax cuts before policies kicked in 6+% robust at this point in Reagan's first term. But we are not in recession or in double dip or triple axel, we are growing, hahaha, it's just less than breakeven growth and no one without a magnifying glass can see it.

83% of Americans say we are still in a Recession (Fox poll, not Fox viewers). Included in the sample are the usual 45% or so who say they approve of President Obama.

I say either the economic numbers will improve (durable good orders down in March) or those approval numbers have peaked. This economy is barking like a duck no matter what the experts say.

The nominal GDP is tweaked with the man made GDP deflator to calculate 'real' growth, if any. Some are saying that deflator that was lowered to 1.1% now, if corrected, would put real growth in Q1 2012 at 0.0%.

U.S. economic growth cooled in the first quarter as businesses cut back on investment and restocked shelves at a moderate pace, but stronger demand for automobiles softened the blow.

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Gross domestic product expanded at a 2.2 percent annual rate, the Commerce Department said on Friday in its advance estimate, moderating from the fourth quarter’s 3 percent rate.

2.2% is not a disaster. It’s about what you’d expect a hot economy to do as it cooled off. It’s been the same with jobs growth. 120,000, 140,000 — not bad, if we’d just enjoyed a year or two of 200,000+ growth each month. Of course, we never got that hot economy. We never got the jobs growth. We never got the big GDP numbers.

As Zero Hedge reminded everyone this morning, “It now takes $2.52 in new debt to raise GDP by $1.00.” That’s unsustainable. And everyone knows it. It’s just that in Washington, they can pretend not to know it, so long as Bernanke keeps doing the ZIRP and the Twist.

Want to hear the really scary part? You probably don’t, but I’m going to tell you anyway. Last quarter’s anemic growth might have been borrowed from the current quarter, thanks to the unseasonably warm weather. I’d look for sub-2% growth perhaps as early as this quarter, but certainly in the second half of the year. That stinks.

Which brings us to the argument Mitt Romney needs to start making. Romney has taken some heat from the right, for talking up the economy, for seeing the silver lining. But he really had no business going negative while the jobs numbers looked OK — you don’t win by talking down a growing economy. Those days are probably over, although we won’t know for sure until next Friday’s jobs report. If it’s another lame one, then Romney needs to switch gears again, and explain to people why Obamanomics has failed. And it’s a simple case to make.

I’ll leave it to the speechwriters to pretty it up, but here’s the bullet-point version.

• The economy bottomed out in Q2 of 2009, before a single Obama policy had taken hold. Not one stimulus dollar had been spent, ObamaCare was still just talk, Dodd-Frank did not exist. Obama did not “save” us from Depression. The recession found its natural bottom without him.

• The economy has been sputtering along that natural bottom ever since. Perky job creation went catatonic with the passage of ObamaCare. Dodd-Frank has enshrined Too Big to Fail while freezing consumer credit. ZIRP is impoverishing the elderly. Stimulus was partisan theft. Quantitative easing has resulted in food & gas inflation which is killing consumers.

• As a result of these policies, we’re on the verge of a double dip recession, which will start with 15% underemployment and 28% of all mortgages underwater. Where’s the natural bottom for that? And with an extra $5,000,000,000,000 in new debt, and interest rates already at zero — what tools does Washington have left to fix it? None.

The image of Obamanomics which Romney needs to sell is this: You take an economy on its back, then stomp the boot of the regulatory state firmly on its throat. You then beat it on the head with a big sack of money. When that fails, get a bigger sack. We’ve tried this for three years now, and yet the economy is still on its back. It’s time to let it breath once more.

That’s a case Romney can make gently, in line with his “He’s a nice guy, but we can’t afford him” approach.

Much will depend on the jobs report next week, but 2.2% growth just can’t generate enough jobs to do Obama any good. Let’s see if Team Romney is up to making the case.

The economy bottomed out in Q2 of 2009, before a single Obama policy had taken hold.

The economy has been sputtering along that natural bottom ever since.

It now takes $2.52 in new debt to raise GDP by $1.00-----------------

Obama still has a goal of tying Romney to Bush, but the only thing missing above is that it was Obama not Romney who along with his Sec of State were the de facto leaders of the United States Senate during the exact period when the wheels fell off. He did not inherit a bad economy in Jan 2009; he had a hand in causing it.-----------------

Wall Street Journal today:

The Growth DeficitThe slowest recovery plods along.

The weakest recovery on record continued in 2012's first quarter, with the Commerce Department's Friday report of 2.2% growth.

- Whoops! Slowest recovery, weakest recovery, worst recovery - That claim was the lead example of both Dana Milbank of the Washington Post and Rachel Maddow of NBC as to why Mitt Romney is such a LIAR; they were saying (a month ago) that was not true - yet. Either we have more data now or else Mitt has a pretty big co-conspirator in this lie.

Economist Alan Reynolds is always worth the read IMO, challenging politicians, and economists who ignore elasticity. It reminds me of the arguments made to raise minimum wage a dollar. It there is no ill effect, why not raise it $20 or $50. If 50% or 70% tax rates have no ill effect, why not go to 100%? Those who project no revenue loss are using the wrong elasticity multiplier, Reynolds argues.

Of Course 70% Tax Rates Are CounterproductiveSome scholars argue that top rates can be raised drastically with no loss of revenue. Their arguments are flawed.

By ALAN REYNOLDS

President Obama and others are demanding that we raise taxes on the "rich," and two recent academic papers that have gotten a lot of attention claim to show that there will be no ill effects if we do.

The first paper, by Peter Diamond of MIT and Emmanuel Saez of the University of California, Berkeley, appeared in the Journal of Economic Perspectives last August. The second, by Mr. Saez, along with Thomas Piketty of the Paris School of Economics and Stefanie Stantcheva of MIT, was published by the National Bureau of Economic Research three months later. Both suggested that federal tax revenues would not decline even if the rate on the top 1% of earners were raised to 73%-83%.

Can the apex of the Laffer Curve—which shows that the revenue-maximizing tax rate is not the highest possible tax rate—really be that high?

The authors arrive at their conclusion through an unusual calculation of the "elasticity" (responsiveness) of taxable income to changes in marginal tax rates. According to a formula devised by Mr. Saez, if the elasticity is 1.0, the revenue-maximizing top tax rate would be 40% including state and Medicare taxes. That means the elasticity of taxable income (ETI) would have to be an unbelievably low 0.2 to 0.25 if the revenue-maximizing top tax rates were 73%-83% for the top 1%. The authors of both papers reach this conclusion with creative, if wholly unpersuasive, statistical arguments.

Most of the older elasticity estimates are for all taxpayers, regardless of income. Thus a recent survey of 30 studies by the Canadian Department of Finance found that "The central ETI estimate in the international empirical literature is about 0.40."

But the ETI for all taxpayers is going to be lower than for higher-income earners, simply because people with modest incomes and modest taxes are not willing or able to vary their income much in response to small tax changes. So the real question is the ETI of the top 1%.

Harvard's Raj Chetty observed in 2009 that "The empirical literature on the taxable income elasticity has generally found that elasticities are large (0.5 to 1.5) for individuals in the top percentile of the income distribution." In that same year, Treasury Department economist Bradley Heim estimated that the ETI is 1.2 for incomes above $500,000 (the top 1% today starts around $350,000).

A 2010 study by Anthony Atkinson (Oxford) and Andrew Leigh (Australian National University) about changes in tax rates on the top 1% in five Anglo-Saxon countries came up with an ETI of 1.2 to 1.6. In a 2000 book edited by University of Michigan economist Joel Slemrod ("Does Atlas Shrug?"), Robert A. Moffitt (Johns Hopkins) and Mark Wilhelm (Indiana) estimated an elasticity of 1.76 to 1.99 for gross income. And at the bottom of the range, Mr. Saez in 2004 estimated an elasticity of 0.62 for gross income for the top 1%.

A midpoint between the estimates would be an elasticity for gross income of 1.3 for the top 1%, and presumably an even higher elasticity for taxable income (since taxpayers can claim larger deductions if tax rates go up.)

But let's stick with an ETI of 1.3 for the top 1%. This implies that the revenue-maximizing top marginal rate would be 33.9% for all taxes, and below 27% for the federal income tax.

To avoid reaching that conclusion, Messrs. Diamond and Saez's 2011 paper ignores all studies of elasticity among the top 1%, and instead chooses a midpoint of 0.25 between one uniquely low estimate of 0.12 for gross income among all taxpayers (from a 2004 study by Mr. Saez and Jonathan Gruber of MIT) and the 0.40 ETI norm from 30 other studies.

That made-up estimate of 0.25 is the sole basis for the claim by Messrs. Diamond and Saez in their 2011 paper that tax rates could reach 73% without losing revenue.

The Saez-Piketty-Stantcheva paper does not confound a lowball estimate for all taxpayers with a midpoint estimate for the top 1%. On the contrary, the authors say that "the long-run total elasticity of top incomes with respect to the net-of-tax rate is large."

Nevertheless, to cut this "large" elasticity down, the authors begin by combining the U.S. with 17 other affluent economies, telling us that elasticity estimates for top incomes are lower for Europe and Japan. The resulting mélange—an 18-country "overall elasticity of around 0.5"—has zero relevance to U.S. tax policy.

Still, it is twice as large as the ETI of Messrs. Diamond and Saez, so the three authors appear compelled to further pare their 0.5 estimate down to 0.2 in order to predict a "socially optimal" top tax rate of 83%. Using "admittedly only suggestive" evidence, they assert that only 0.2 of their 0.5 ETI can be attributed to real supply-side responses to changes in tax rates.

The other three-fifths of ETI can just be ignored, according to Messrs. Saez and Piketty, and Ms. Stantcheva, because it is the result of, among other factors, easily-plugged tax loopholes resulting from lower rates on corporations and capital gains.

Plugging these so-called loopholes, they say, requires "aligning the tax rates on realized capital gains with those on ordinary income" and enacting "neutrality in the effective tax rates across organizational forms." In plain English: Tax rates on U.S. corporate profits, dividends and capital gains must also be 83%.

This raises another question: At that level, would there be any profits, capital gains or top incomes left to tax?

"The optimal top tax," the three authors also say, "actually goes to 100% if the real supply-side elasticity is very small." If anyone still imagines the proposed "socially optimal" tax rates of 73%-83% on the top 1% would raise revenues and have no effect on economic growth, what about that 100% rate?

Mr. Reynolds is a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press, 2006).

Thanks JDN. Yes the issue is perhaps the same everywhere at different times.

Your opinion from LA is relevant too because that their threat - to move the Vikings to LA. Does anyone even know what lakes your Lakers are named for?

I hate public private partnerships as a violation of about a dozen principles, equal protection comes to mind, extortion being illegal is another. It should either be a public asset that they rent to a team or a private football business investment. The road and highway changes and other infrastructure expenses should be enough for the taxpayer portion. This is subsidy to help billionaires hire more millionaires - (so that largely white people can watch black people hurt each other). What they forget is that it is zero-sum because they take from all other businesses to subsidize one.

Locally they call it the "cold Omaha" argument, meaning that one of the world's greatest cities and region's population and cultural center will be as irrelevant as Omaha (quite insulting!), and colder (farther north), if not for pro sports. Missing in that argument is that except that good teams like the Packers come visit, we already lost the pro-level quality of all our teams a few years back.

Also missing in the local argument is that this really was a two stadium question, Twins and Vikings, and really more stadiums than that over the last few years. Former Governor Tim Pawlenty got the Twins stadium done by allowing Hennepin County to foot the taxpayer portion. Henn Co got the tax approved with rule by 4 commissioners and never put it on the ballot. Hennepin County not even counting the Minneapolis part has an economy larger than about 8 states. The Vikings deal then should have been put on all counties except Hennepin for MN to retain the last vulnerable pro franchise. Not so. We get to double pay. Ironically those of us in the outskirts of Hennepin live further from t he stadiums than all of Ramsey County(St. Paul) and parts of 4 other counties, but get the double tax.

Also missed in the SI story is that we also built a new football stadium on the Univ. of MN campus, one of the nation's 5 largest public university campuses, in the same city, in the same time frame, for the same sport, for 6 home games/yr, but there is "no way" that pro football could be played in that stadium, for 'economic' reasons. Building two stadiums at the same time for the same sport in the same is economical? Only with government approval of taxpayer money.

U of M also broke ground on a new baseball Stadium this week. Don't tell me we don't have enough money.

Like Sweden, the Minnesota blue state economic plan only worked back when people had a Scandinavian (and German) work ethic that didn't allow anyone to quit work unnecessarily and soak up public resources. Those ethics are long gone while the spending programs keep growing.

What did Milton Friedman say about public subsidies... Investments that don't pay for themselves - aren't worth making.

=========Email Print Save ↓ More ..smaller Larger By KARL ROVE President Barack Obama's re-election organization is spending a lot of time attacking Mitt Romney over his careers in venture capital (investing in start-ups) and private equity (investing in troubled or failing businesses).

To reporters at Bloomberg Businessweek, Obama senior campaign adviser David Axelrod recently ripped Mr. Romney for "leveraging companies with debt, bankrupting companies and making money off of those bankruptcies . . . [that] cost jobs and certainly wages and benefits."

And an Obama campaign briefing paper says "Romney closed over a thousand plants, stores and offices . . . cut employee wages, benefits and pensions . . . laid off American workers and outsourced their jobs to other countries."

The president is guilty of the same alleged sins.

The Obama administration, after all, forced General Motors and Chrysler into Chapter 11 bankruptcy in 2009 and then capriciously ordered thousands of local dealerships closed.

Karl Rove talks about what President Obama's campaign team might be thinking heading into the next election and Joe Trippi discusses the importance of voter turnout and networking..The auto industry bailout cost lots of Americans their jobs. GM employed roughly 252,000 workers in 2008. Now it has 207,000, with 131,000 of them working in foreign plants. The Detroit Free Press recently noted that fewer Americans work at Chrysler than did before the bankruptcy. Based on data from the National Automobile Dealers Association, I estimate that as many as 100,000 Americans lost jobs at the companies' dealerships.

Mr. Obama's auto industry bailout plan imposed cuts in wages and benefits for current and future workers at both GM and Chrysler. And he loaded up both companies with debt they can never repay. The bailouts cost $80 billion; $51 billion is still outstanding and $24 billion may never be recovered, according to the Treasury Department's latest report. As GM's profits stall, its stock languishes at a level less than half that necessary to recoup Mr. Obama's investment of taxpayer dollars in the company.

The president's actions have produced big bucks for a foreign business. Last month, Fiat reported that, powered by its U.S. Chrysler subsidiary, profits were up tenfold the past year. Without Chrysler's earnings, Fiat would have lost money.

Fiat is likely to deploy those profits in expanding its world-wide operations, even as it's still unclear if it will deliver on its promise of billions in technologies for fuel-efficient vehicles in the U.S.

Mr. Obama also shifted production—and jobs—overseas. As part of the administration's restructuring, GM will increase production in China, Mexico South Korea and Japan—almost doubling the number of vehicles it makes in those countries, according to a confidential report by the company to Congress in May 2009 (obtained by the Detroit News). Many of those cars will be imported into the U.S.

About Karl RoveKarl Rove served as Senior Advisor to President George W. Bush from 2000–2007 and Deputy Chief of Staff from 2004–2007. At the White House he oversaw the Offices of Strategic Initiatives, Political Affairs, Public Liaison, and Intergovernmental Affairs and was Deputy Chief of Staff for Policy, coordinating the White House policy-making process.

Before Karl became known as "The Architect" of President Bush's 2000 and 2004 campaigns, he was president of Karl Rove + Company, an Austin-based public affairs firm that worked for Republican candidates, nonpartisan causes, and nonprofit groups. His clients included over 75 Republican U.S. Senate, Congressional and gubernatorial candidates in 24 states, as well as the Moderate Party of Sweden.

Karl writes a weekly op-ed for the Wall Street Journal, is a Fox News Contributor and is the author of the book "Courage and Consequence" (Threshold Editions).

Email the author atKarl@Rove.comor visit him on the web atRove.com. Or, you can send a Tweet to @karlrove.

Click here to order his new book,Courage and Consequence..There are differences between Mr. Romney and Mr. Obama. Mr. Romney rescued companies with private money collected from investors including union pension funds, college endowments and private individuals. He had to go through the normal process of laws and courts. His principal focus was on long-term growth for companies in which he invested his company's reputation and money. And he had to make a profit to be successful.

Mr. Obama's story is very different. The auto industry was bailed out with taxpayer money. The president restructured GM and Chrysler by fiat and then forced them into bankruptcy, presenting the courts with a fait accompli.

The president wanted the auto industry to survive, but he also wanted to reward political allies—so he gave 20% of General Motors and 55% of Chrysler to the United Auto Workers union. He stood by as the UAW forced the closure of a plant in Moraine, Ohio, where workers had joined a rival union.

The secured crditors of GM and Chrysler—including retirees, pension funds and endowments—had their investments virtually wiped out by the president's plan. Though taxpayers will never get all their money back, the president still calls it all a big success.

If the auto industry bailout is the best Mr. Obama can do, Republicans should take heart. Because matched against his overall record of presiding over high unemployment, trillion-dollar annual deficits, and a growing number of Americans in poverty and on food stamps, the bailout is not the political game changer Team Obama believes it is.

Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).

To try to answer your question after a long day, my first inclination is to say I basically agree with you. Why use public money? As for college stadiums,well I'm happy to go watch my alma mater USC play in the Coliseum. One could argue, why couldn't a pro team play there? Seriously.

That said, being in a big market, we have choices and money. Small cities, like Green Bay, although that's a unique situation, somehow have to compete.How are they going to do it?

Further, although I don't necessarily buy it, supposedly pro teams bring in revenue to the city. I love LA, and I like football (USC), but I really don't missnot having a pro team. We have so many choices here in LA for entertainment. Green Bay, well, they have the Packers.

I'm rambling, but in general, to answer your question, except for a parade for a championship down main street, I too am not sure why a city/state, or any governmental agency provides money or guarantees to a private enterprise like a sports team where players are making millions and the team is owned by billionaires (Packers excepted).

JDN, Don't worry, in Purple Rain, Prince didn't know his Minneapolis lakes either. Just the point that Minneapolis has sent good teams to LA for the larger market before. The economic tenet is that these athletes (and owners) deserve the large fruits of their labor (and investment risk taking) IF those dollars flow based on a free economic exchange. If you can bring entertainment and enjoyment to millions of people based on talent and hard work then you are entitled to your share of the money rightfully generated. Unfortunately pro sports has a false model with a hole in it where the already humungous money is inflated by the taxpayers in the communities. Their money comes partly from a threat of taking my home or imprisoning me if I don't pay. Nice.

Of course they do and that is more visible and measurable than the money taken from all the other businesses to artificially support them. Meanwhile, they build homes a lot like Mitt Romney's. http://blogs.citypages.com/blotter/2010/06/kevin_garnetts.php (Click where it says 'view larger map' to see what a Minneapolis metro lake look like.)

Taxpayer support of pro sports is from the same argument as special treatment for auto makers or anyone else. Of course we don't want to lose them, but not at the cost of undermining the principles that make the whole system work. Like paying ransom for hostages, we'll do it just this once thinking big pay with no risk won't encourage more hostage situations. Too-big-to-fail thinking ironically makes the too-big get bigger and bigger, literally at the expense of the small. That is what we want?

It is hard to articulate, but the possibility of failure in capitalism is part of the dynamism and constant rejuvenation of freely flowing assets, resources and innovation that all centrally run, state directed economies by definition lack.

It is hard to articulate, but the possibility of failure in capitalism is part of the dynamism and constant rejuvenation of freely flowing assets, resources and innovation that all centrally run, state directed economies by definition lack.

Frankly, IMHO that is what makes America great. The willingness to try and fail, and fail, and try again. The entrepreneurial spirit.

French labor code: Once a company has at least 50 employees inside France, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons.

French businesspeople often skirt these restraints by creating new companies rather than expanding existing ones. “I can’t tell you how many times when I was Minister I’d meet an entrepreneur who would tell me about his companies,” Thierry Breton, chief executive officer of consulting firm Atos and Minister of Finance from 2005 to 2007, said at a Paris conference on April 4. “I’d ask, ‘Why companies?’ He’d say, ‘Oh, I have several so that I can keep [the workforce] under 50.’ We have to review our labor code.”------

They also 'skirt' regulations by not starting businesses in the first place.

Unemployment up. New jobs down. Previous months new jobs revised down. The number of long term unemployed up. Worker participation rate down. Average work week down.

Who could have seen this coming?

Wesbury has 2 days to put together his Monday morning outlook: 'After Fridays market collapse we see even greater buy opportunities?', 'we feel good about the worst recovery ever'-----"The U.S. economy has “slipped back under the Mendoza line,” JPMorgan Chase (JPM) Chief U.S. Economist Michael Feroli said Thursday, before the jobs report came out but after another discouraging report—the news that the U.S. economy grew at an annual rate of just 1.9 percent in the first quarter. The Mendoza line is baseball lingo that has made the jump into business. It’s a reference to Mario Mendoza, a shortstop for Pittsburgh, Seattle, and Texas in the 1970s and 1980s whose batting average (below .200 in five of his nine seasons) has come to stand for the dividing line between mediocrity and badness."http://www.businessweek.com/articles/2012-06-01/the-u-dot-s-dot-economy-slips-below-the-mendoza-line-----"The economy bottomed out in Q2 of 2009, before a single Obama policy had taken hold.The economy has been sputtering along that natural bottom ever since.It now takes $2.52 in new debt to raise GDP by $1.00 - from GM's post Apr 28 2012-----A billion dollars of political ads doesn't make this look any different.

There is no doubt that good institutions are important in determining a country’s wealth. But why have some countries ended up with good institutions, while others haven’t? The most important factor behind their emergence is the historical duration of centralized government. Until the rise of the world’s first states, beginning around 3400 BC, all human societies were bands or tribes or chiefdoms, without any of the complex economic institutions of governments. A long history of government doesn’t guarantee good institutions but at least permits them; a short history makes them very unlikely. One can’t just suddenly introduce government institutions and expect people to adopt them and to unlearn their long history of tribal organization.

That cruel reality underlies the tragedy of modern nations, such as Papua New Guinea, whose societies were until recently tribal. Oil and mining companies there pay royalties intended for local landowners through village leaders, but the leaders often keep the royalties for themselves. That’s because they have internalized their society’s practice by which clan leaders pursue their personal interests and their own clan’s interests, rather than representing everyone’s interests.

Responding to BD's previous post in the thread, that is a very important question and sounds like a great book suggestion. I find the points made in the review extremely valid.

Within the question of rich or poor countries I think are two questions, why do great nations fall and how come most places never develop any wealth in the first place.

Two other books of note on this topic:

"Conquests And Cultures: An International History" by Thomas SowellDetailed studies and wisdom from across the globe and throughout history.

Also a 14th century Arabic book by Ibn Khaldun that I searched out after Arthur Laffer called him the first supply side economist. 'The Muqaddimah' (introduction to history) covers timeless economic principles from 1377, now published at books.google.com

This is an excerpt in translation that I picked out his economic observations:

"In the early stages of the state, taxes are light in their incidence, but fetch in a large revenue...As time passes and kings succeed each other, they lose their tribal habits in favor of more civilized ones. Their needs and exigencies grow...owing to the luxury in which they have been brought up. Hence they impose fresh taxes on their subjects...[and] sharply raise the rate of old taxes to increase their yield...But the effects on business of this rise in taxation make themselves felt. For business men are soon discouraged by the comparison of their profits with the burden of their taxes...Consequently production falls off, and with it the yield of taxation."

Posted in Obama Phenomenon is an IBD rebuttal to any positive spin on the Obama record. I was wondering what Wesbury might have said in his Monday morning response to Friday's dismal economic news. First some positive spin "acceleration in the household number suggests the job market is not as bad as it was made out to be", then a clarification on his "Plowhorse Economy" designation:

[The reasons we have a plowhorse economy are the] "the same reasons Europe had slow growth and a high unemployment rate for the past three decades: government spending, taxes, and regulation have been a huge burden."

"Government is a burden which slows growth and reduces job opportunities. The only way to get a permanent acceleration – in real GDP, incomes, and job growth – is to lighten the load. The good news for the US is that there is a four step plan to make this happen and we’re going to face all of them this year.First is the recall election on Tuesday for Scott Walker as Governor of Wisconsin. Democrats in Massachusetts and Rhode Island – even Rahm Emanuel in Chicago – have also carried out reforms for government workers, but Walker’s efforts created a massive political backlash. A Walker victory would set the stage for more reforms in other states.Second is the late June Supreme Court ruling on Obamacare. Health insurance is an important issue and many reasonable people disagree about inequities in that market, but a government takeover would signal further growth in government spending and regulation, which would dampen the entrepreneurial spirit and increase uncertainty.Third is the November 7th presidential election, when voters across the country get the chance to signal a desire to roll back the size and scope of government. “Core” government spending – outside of defense, TARP, interest and entitlements – has hit a record high in recent years. A change in leadership would mean a chance to greatly reduce the share of GDP controlled by Washington. Finally, the scheduled tax hike on income, capital gains, and dividends in 2013 has become a wall of uncertainty for business to overcome. If the first three steps happen, this one will too.These steps will decide whether the US heads toward a European-like future or remains a bastion of free market capitalism. As each step unfolds, the momentum of the decisions will also become more visible. We remain confident America is a “center-right” country that respects its Constitution. If so, look out. The Plow Horse may turn into a thoroughbred."http://www.ftportfolios.com/Commentary/EconomicResearch/2012/6/4/speeding-up-the-plow-horse

Others follow up on a point I attempted to make yesterday. I was writing about 'breakeven' real GDP growth. This writer says the US economy must create 125,000 new jobs per month to break even. Article below I(fox News) says that 191,000 new workers come here every month. Roughly 92% of them need to find new jobs to keep our 8% unemployment rate at 'breakeven' levels. 80,000 jobs in a country of 310 million people does not do that!

Friday, July 6, 2012U.S. Jobs Deficit Grows by 47,000 in June

Going Around in Circles

~ “If you're lost in the woods and you feel like you're walking in circles, you probably are.” ~ Discovery News

- By: Larry Walker, Jr. -

According to the Economic Policy Institute (EPI), the U.S. economy needs to create a minimum of 127,000 each month in order to keep pace with population growth. And based on today’s Employment Situation Report, the economy created just 80,000 jobs in June. That means the jobs deficit increased by another 47,000 last month. Yet, according to Barack Obama, "That's a step in the right direction.” However, according to economic common sense, it’s another step towards stagnation, then decay and dissolution.

He added, “We can't be satisfied because our goal was never to just keep on working to get back to where we were back in 2007.” So according to Obama, his goal was never to just keep working to get back to where we were in 2007, a day when we had 4,805,000 jobs more than we have currently. “I want to get back to a time when middle-class families and those working to get into the middle class have some basic security,” he said. We are left to wonder what time that was – the 1920’s, 50’s, 60’s, 80’s, 90’s, or the 2000’s. But based on the latest jobs report, that time could have been any year prior to Obama’s term.http://larrymwalkerjr.blogspot.com/2012/07/us-jobs-deficit-grows-by-47000-in-june.html--------------------------------

Americans faced another disappointing jobs picture today. Of course, we could go through the numbers again. With the working age population growing by 191,000 last month, 80,000 more jobs doesn’t even come close to absorbing all these new workers, let alone employing those who have long been out of work. And then there’s the most important number of all: for 41 months, the unemployment rate has been above 8 percent.

More workers joined the federal government's disability program in June than got new jobs, according to two new government reports, a clear indicator of how bleak the nation's jobs picture is after three full years of economic recovery.

First, excellent previous post by BD. I continually impressed with his range of reading materials. IEEE Spectrum is one of my old favorites.---------------------------------------------------------------------------------------------

3. Impose a 2,400-page, trillion-dollar new federal takeover of health care, with layers of new taxation, much of it falling on the middle class and employers, even as favored concerns are given mass exemptions.

4. Scare employers with constant us/them class warfare rhetoric about a demonized one-percenter class and its undeserved profits; constantly talk about raising new taxes and imposing regulations, ensuring uncertainty and convincing employers of unpredictability in regulation and taxes. You cannot convince a country to go into permanent near-recession, but President Obama is doing his best to try."

More famous people reading the forum, Thomas Sowell helps me today to answer Bigdog's tough question posed recently: "You don't recognize the connection to building cars in the US and US jobs?"

Sowell: "Creating (saving in this case) particular jobs does not mean a net increase in jobs.

Jobs Versus Net Jobs

By Thomas Sowell - July 10, 2012

One of the reasons for the popularity of political rhetoric is that everybody can be right, in terms of their own rhetoric, no matter how much the rhetoric of one side contradicts the rhetoric of the other side.

President Obama constantly repeats how many millions of jobs have been created during his administration, while his critics constantly repeat how many millions of jobs have been lost during his administration. How can both of them be right -- or, at least, how can they both get away with what they are saying?

There are jobs and there are net jobs. This is true not only today but has been true in years past.

Back during the 1980s, when there were huge losses of jobs in the steel industry, the government restricted the importation of foreign steel. It has been estimated that this saved 5,000 jobs in the American steel industry.

But of course restriction of competition from lower-priced imported steel made steel more expensive to American producers of products containing steel. Therefore the price of these products rose, making them less in demand at these higher prices, causing losses of sales at home and in the world market.

The bottom line is that, while 5,000 jobs were saved in the American steel industry, 26,000 jobs were lost in American industries that produced products made of steel. On net balance, the country lost jobs by restricting the importation of steel.

None of this was peculiar to the steel industry. Restrictions on the importation of sugar are estimated to have cost three times as many jobs in the confection industry as they saved in the sugar industry. The artificially high price of sugar in the United States led some American producers of confections to relocate to Mexico and Canada, where the price of sugar is lower.

There is no free lunch in the job market, any more than there is anywhere else. The government can always create particular jobs or save particular jobs, but that does not mean that it is a net creation of jobs or a net saving of jobs.

The government can create a million jobs tomorrow, just by hiring that many people. But where does the government get the money to pay those people? From the private economy -- which loses the money that the government gains.

With less money in the private sector, the loss of jobs there can easily exceed the million jobs created in the government or in industries subsidized by the government. The Obama administration's creation of "green jobs" has turned out to cost far more money per job than the cost of creating a job in the private sector.

In addition to reducing jobs in the private sector by taking money out of the private sector to pay for government-subsidized jobs, the Obama administration has made businesses reluctant to hire because of the huge uncertainties it has created for businesses as regards the cost of adding employees. With thousands of regulations still being written to implement ObamaCare, no one knows how much this will add to the cost of hiring new employees.

In the face of this economic uncertainty, even businesses that have an increased demand for their products can meet that demand by working their existing employees overtime, instead of adding new employees. Many employers hire temporary workers, who are not legally entitled to benefits such as health insurance, and who will therefore not be affected by the cost of ObamaCare.

When President Obama boasts of the number of jobs created during his administration, the numbers he cites may be correct, but he doesn't count the other jobs that were lost during his administration. His critics cite the latter. Both can claim to be right because they are talking about different things.

What has been the net effect? During this administration, the proportion of the working age population that has a job has fallen to the lowest level in decades. The official unemployment rate does not count the millions of people who have simply given up looking for a job.

If everybody gave up looking for a job, the official unemployment rate would fall to zero. But that would hardly mean that the problem was solved or that the "stimulus" worked. Creating particular jobs does not mean a net increase in jobs.

BD: "It is a good thing 5,000 jobs were saved. Otherwise there would have been a net loss of 31,000 jobs."

I think you either missed or disagree with his point.

Sowell: "5,000 jobs were saved in the American steel industry, 26,000 jobs were lost in American industries that produced products made of steel."

His point is that these companies had to pay more than foreign competitors did for steel. Saving steel by making US manufacturers pay more for it a) puts them at a competitive disadvantage and b) gives them reason to move their own manufacturing out. These job losses under Sowell's logic are not additive, they are offsetting.

Saving auto jobs by changing the rules of capitalism assumes that the resource shifts and the unpredictability that causes has no other effect, negative effect, on the other participants, investors, lenders, job creators for example. The auto industry bailout began in Dec 2008. Net jobs saved on this BLS employment chart during the period following the auto rescue do not look very impressive, of course it is never the case that all other factors are held constant.

Economic freedom with a fairly level, predictable playing field, more than auto manufacturing, made the American economy great. There is no reason we can't have both IMHO.

DMG: "I think you either missed or disagree with his point." You are quite right.

DMG: "of course it is never the case that all other factors are held constant." True, but there is correlation and causation, and for Sowell to seem to understand that is problematic.

Moreover, Sowell in an effort to blame Obama (it is an election year, after all), ignores Congress. Why? Convenience, but that convenience is sloppy. Obama, or any other president, can't "meddle" (or "rescue" depending on the point of view) in economic policy without explicit and implicit assistance from Congress.

Ummm , , , Obama has led the efforts for massive deficit spending so it seems fair to me that he get credit for it-- especially in that it originated in a Congress where both houses were Democrat controlled. Yes?

I remember BO claiming "creating or saving" (a wondrously impossible to measure metric this new category of "saved" jobs) 3 million jobs with $600,000,000,000 TARP/Stimulus 1 or 2 or whatever money. A simple mathematical calculation reveals that even if we accept the President utterly disingenuous numbers this comes out to $200,000 per job claimed!!! It seems quite obvious to me that the $600B taken from the private economy must have heavy costs

Concerning the auto industry: Both MR and the Pravdas seem to be letting BO get away with this meme that if the car companies went bankrupt, the jobs in question would have disappeared and that he, BO, "saved the auto industry". This simply isn't true. The owners would have been wiped out (a correct result) the burdensome contracts with the unions eliminated or renegotiated, debts reduced or eliminated, and the NEW BUYERS would have a fresh start. There is no mystery to this. I forget which chapter of the bankruptcy law (7? 11?) covers it, but it happens all the time.

Ummm , , , Obama has led the efforts for massive deficit spending so it seems fair to me that he get credit for it-- especially in that it originated in a Congress where both houses were Democrat controlled. Yes?

I remember BO claiming "creating or saving" (a wondrously impossible to measure metric this new category of "saved" jobs) 3 million jobs with $600,000,000,000 TARP/Stimulus 1 or 2 or whatever money. A simple mathematical calculation reveals that even if we accept the President utterly disingenuous numbers this comes out to $200,000 per job claimed!!! It seems quite obvious to me that the $600B taken from the private economy must have heavy costs

It is not as if the party is a single unit. And, by constitutional design, the president, senators and representatives have different interests. So, "maybe" or "on occassion" but not always, necessarily "yes."

And, as Sowell (correctly) notes, just because Obama (or another president or politican) claims credit, it does not make it so, whether or not the policy in question "worked."

"...but there is correlation and causation, and for Sowell to seem to understand that is problematic."

Not sure if I followed you correctly and speaking for me not Sowell. Changing the rules and moving the goal posts to save specific union Dem constituency jobs, that may well have come back redefined, coincided with a loss of about 2 million jobs generally in the economy. If there is correlation/causation, it is that 'saving' those jobs from renegotiation coincided for sure and maybe caused net jobs lost. The curve is clearly downward at that time, and those were the policies.

I think it was me more than Sowell forcing the auto industry example. It just seems like a perfect example of the difference in views. Sure the government can always create or save particular jobs, but at the the expense of not having the kind of system where scarce resources like manufacturing capacity and labor allowed to move freely to their most productive use. We can move goal posts around during a soccer game to favor certain shooters or certain shots at certain times, but then what is left of the game? Cronyism, like most third world and ash heap economies. Crafty is right on auto jobs IMO. Preventing a needed reorganization is not the same as saving jobs. United Airlines and others were still flying passengers in the days, months and years after their bankruptcies.

If you prop up every dead tree in a forest does that maximize its vitality or spur robust new growth underneath? I think not.

Sowell continued, regarding Obamacare: "the Obama administration has made businesses reluctant to hire because of the huge uncertainties it has created for businesses as regards the cost of adding employees."

This is without a doubt true and of no fault whatsoever of the Republican House who provided zero votes to this anti-employment legislation and already voted to repeal.

You can force 50 person companies do this and do that, whether it is healthcare, family leave, daycare, layoff notices, minimum benefits, maximum hours, excess profits taxes, you name it, but you can't (yet) force people to form 50 person companies.

Those legislators and regulators are blind I think to the point of Feldstein in the Morris tax piece that people change their behavior to policy changes. In that example it was to the tune of misjudging revenues by a factor of two thirds!

Obama's policies are job creation killing. Why shouldn't he be singled out for a two million or so net loss of American jobs? What are the policies that Republican kept President Obama from implementing during the Obamacare passage debacle? Passing that massive tax increase during a recession was job one while he had the House and 60 Senators. On the other side of the coin the Pelosi-Obama congress of '07-'08 most certainly neglected to force Fannie Mae and CRA reform and prevented the Bush administration from making temporary tax cuts permanent.

It looks like General Motors will be throwing everything in but the kitchen sink to help fluff its second quarter earnings numbers. Taxpayers continue to help with the cause as President Obama campaigns on the "success" of GM following the manipulated bankruptcy process that cost taxpayers $50 billion and another $45 billion of tax credits gifted to GM to help protect powerful UAW interests. We now learn that government purchases of GM vehicles rose a whopping 79% in June.

The discovery of the pick-up in government fleet purchases at the taxpayers' expense comes just weeks before GM announces its second quarter earnings. Overall fleet sales (which are typically less profitable than retail sales) at Government Motors rose a full 36% for the month, helping to drive decent sales improvements year over year.

GM claimed that sales increases did not rely on incentive spending, which appeared to remain in check, but one analyst during GM's sales conference call questioned whether the company's "stair step" incentive spending was accurately depicted. This incentive spending kicks in after dealerships report final sales figures for the month and may be yet another deceptive way for GM to fudge its numbers. Not mentioned was GM card rewards programs that do not get counted as incentive spending.

The government's increased spending on GM vehicle purchases presents yet another conflict of interest as Treasury refuses to sell taxpayers' stake in GM and Obama campaigns on the auto bailouts. It does not appear that any members of Congress (from either party) are questioning the increased spending. Also ignored was the Department of Energy's gifting of $2.7 million of taxpayer money to GM to reduce energy consumption in its door manufacturing process by 50%. The DOE seems to be one of the main conduits to funnel taxpayer funds to cronies of the Administration. The $2.7 million contribution to GM comes after additional millions of dollars were spent by the DOE on advisory fees paid to legal firms that helped smooth the way for the GM bankruptcy process (as reported here); another move that went unquestioned.

The upcoming earnings announcement by GM is, politically, the most important to date. The pressure is on Government Motors to appear financially strong as this may be the last earnings report before November elections and sets the stage for how "successful" GM is. One of GM's past tricks to help fudge earnings numbers has been to stuff truck inventory channels. Old habits die hard at GM. According to a Bloomberg report, "GM said inventory of its full-size pickups, which will be refreshed next year, climbed to 238,194 at the end of June, a 135 days supply, up from 116 days at the end of May." 135 days supply is huge, the accepted norm is a 60 day supply. The trick here is that GM records revenue when vehicles go into dealership inventories, not when actually sold to consumers.

The article goes on to quote Kelley Blue Book's Alec Gutierrez who stated "They're (GM) likely going to have a relatively high days supply of trucks moving forward and they're already placing some pretty aggressive cash incentives on the hood. It's going to eat into their profit margins..."

GM's earnings announcement comes on August 2nd. The main headwinds will be weak European operations and growing pension liabilities. The headline number for earnings should be viewed skeptically and an eye kept on the share price reaction after the conference call. Expect Government Motors to put a positive spin on its financial health as the stakes are now at their highest. The long-term health of GM remains in question and the true financial picture may not surface until well after voters decide who will be running our country. Eventually we will see just how successful GM really is.

Mark Modica is an NLPC Associate Fellow.

Logged

"You have enemies? Good. That means that you have stood up for something, sometime in your life." - Winston Churchill.

Since 1986, Staples has opened 2,000 stores, eliminating the jobs of distributors and brokers who charged nasty markups for paper and office supplies. But it enabled hundreds of thousands of small (and not so small) businesses to stock themselves cheaply and conveniently and expand their operations.

It's the same story elsewhere. Apple employs just 47,000 people, and Google under 25,000. Like Staples, they have destroyed many old jobs, like making paper maps and pink "While You Were Out" notepads. But by lowering the cost of doing business they've enabled innumerable entrepreneurs to start new businesses and employ hundreds of thousands, even millions, of workers world-wide—all while capital gets redeployed more effectively.

This process happens during every business cycle and always, always creates jobs. Yet is ignored by policy mavens.

It is now four years after the wheels fell off our financial system. The government has tried every gimmick to revive the economy: fiscal stimulus, monetary easing, loan write-downs, foreclosure modifications—all duds. It seems like no one remembers how an economy creates jobs anymore. The right answer, in fact the only answer, for jobs and better living standards, is productivity.

Economists define productivity as output per worker hour. But ramping up the output of trolleys or 8-track tapes won't increase living standards. It is not just technical efficiency that matters, it is also effectiveness—that is, producing what the economy really needs and consumers will pay for.

And so, in a broader sense, productivity is really about doing the right things the right way. Using modern construction equipment, we could build a pyramid on the National Mall in Washington with amazing efficiency, but it would not be effective.

So how does productivity result in more employment?

Three ways. First, some new technology comes along that allows something never before possible. Cash from an ATM, stock trading from an airplane's aisle seat, ads next to Google search results.

The inventor or entrepreneur who uses the invention benefits from sales and wealth and hires people to produce the good or service. We don't hear about this. Instead we hear about the layoffs of bank tellers, stockbrokers and media salesmen. So productivity becomes the boogeyman for job losses. And many economic cranks would prefer that we just hire back the tellers and toll collectors.

This is a big mistake because new, cheaper technology becomes a platform for others to create or expand businesses that never before made economic sense. Adobe software killed typesetters, but allowed millions cheaply to get into the publishing business. Millions of individuals and micro-size businesses now reach a national, not just local, retail market thanks to eBay. Amazon allows thousands upon thousands of new vendors to thrive and hire.

Consider Uber, a 20-month-old start-up, whose smartphone app knows where you are and with a simple click arranges a private car pickup to take you where you want. It doesn't exist without iPhones or Androids. Taxi and limousine dispatchers lose. Customers win. We'll all be surprised by new tablet applications being dreamed up in garages and basements everywhere.

The third way productivity results in more employment is by attracting capital to satisfy new consumer demands. In a competitive economy, productivity—doing more with less—always lowers the cost of products or services: $5,000 computers become $500 tablets. Consumers get to spend the difference elsewhere in the economy, and entrepreneurs will be happy to sell them what they want or create new things they never heard of, but will want. And those with capital will be eager to fund these entrepreneurs. Win, win.

The mechanism to decide the most effective use for this capital is profits. The stock market bundles profits and is the divining rod of productivity, allocating capital in cycle after cycle toward the economy's most productive companies and best-compensated jobs. And it does so better than any elite economist or politician picking pork-barrel projects and relabeling them as "investments."

The productive use of capital is not an automatic process, of course. It is all about constant experimentation. And it is never permanent: Railroads were once tremendously productive, so were steamships and even Kodachrome. It takes work, year in and year out—update, test, tweak, kill off. Staples is under fire from Amazon and other productive online retailers. Its stock has halved since its 2010 peak and is almost at a 10-year low. So be it.

With all the iPads and Facebook and cloud-computing growth, why is unemployment still 8.2% and job creation stalled? My theory is that productivity is always happening but swims upstream against those that fight it. Unions, regulations and a bizarre tax code that locks in the status quo.

In good times, no one notices. But in slow-growth economies, especially in the last 10 years, regulations and hiring rules and employer mandates and environmental anchors have had a cumulative dampening effect on productivity.